Global capital flows to further diversify, while investors to remain cautious and selective in 2020

Vernia Lim

"The fundamentals of Asia Pacific’s commercial real estate market will again serve as a major draw for investors in 2020. Despite macroeconomic challenges and the highly unpredictable nature of the Covid-19 outbreak, longer-term investor sentiment remains extremely positive. We foresee investor strategies becoming more selective and further diversification into the logistics, living and datacentre sectors. The continued low interest rate environment and supportive central bank policy will also offset some of the macro headwinds and provide further confidence to investors’ cross-border strategies,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.

“Investors will remain highly selective in their capital allocations in Asia Pacific. A shortage of supply will likely prompt investors to rethink medium-term strategies and look more closely at alternative asset classes across the region. While there may be some moderation in overall transaction volumes, we expect moderation to be influenced by broader considerations including geopolitics, supply shortages, and allocation repositioning,” says Regina Lim, Executive Director, Asia Pacific Capital Markets Research, JLL.

Key takeaways:

New flow records: 2019 stands as the most active year for global real estate investment on paper as measured by transaction volume. Investment in global commercial real estate increased by 10 per cent in Q4 2019, rising to US$245 billion, bringing full-year activity to US$800 billion, up 4 per cent.

Cross-border world: Global cross-border transaction volumes spiked in Q4 2019, reaching US$107 billion, representing the second-highest level on record behind Q4 2017. In total, 2019 full-year cross-border activity reached US$349 billion, a new high for the current cycle. Inter-regional flows increased significantly in 2019, with US$254 billion moving from one region to another, well above the long-run average of US$177 billion.

Industrial draw: The industrial sector registered its most active ever year on record. Global investment rose by 24 per cent to US$166 billion, and the industrial appeal is motivating investors to look outside of their home markets for assets as cross-border investment in the sector grew to a new high of US$53.6 billion.

REIT performance: Globally, REITs have outperformed other global asset classes over the past decade. Since 2010, global REITs have produced an annualized total return of 11 per cent, compared to single-digit annualized returns for global equities and fixed income over the same timeframe — expected listings in Singapore and India in 2020 to diversify the REIT base regionally.

Asia Pacific moderates and matures: In Q4, Asia Pacific’s record-breaking streak ultimately ended as a fourth-quarter slowdown while investment flows moderated 4 per cent relative to the same period in 2018. On the flip side, the robust start to the year means delivered an increase to full-year volumes of 6 per cent, to US$169 billion. The rise in activity centered on core markets, such as China, Japan, Singapore, and South Korea, where domestic and foreign investors alike remain active. Meanwhile, political uncertainty continues to impact Hong Kong, where investment is down by 53 per cent.

Global investment moderation to continue: Expect global investment in commercial real estate to moderate slightly, by 0-5 per cent, to roughly US$780 billion. While investors remain keen to access the sector, continued caution and selectivity, as well as limited availability of assets, stand to impact transaction volumes.

Conspicuous Headwinds: Continued political and macroeconomic uncertainty will influence investment volumes in 2020. While there are some hints that global growth may pick up slightly, pockets of concern remain from rising geopolitical tensions in Asia, and the emergence of the coronavirus will undoubtedly influence the rapid growth of corporate credit. Nevertheless, central bank policy remains accommodative, and the low-interest-rate environment will carry over into 2020.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 93,000 as of December 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.